Mr. Olatunde took up a fire insurance on a property valued at ₦1000 and the amount insured is ₦800. If the property caught fire causing a loss of ₦400, and the insurance was taken with the clause with average, what is the amount to be paid by the insurance company?
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Correct Answer: Option B
Explanation:
With the average clause, the insurer pays a proportion of the loss based on the ratio of the insured amount to the property value. The calculation is:<br/>\(\text{Compensation} = \left( \frac{\text{Amount Insured}}{\text{Property Value}} \right) \times \text{Loss}\)<br/>\(\text{Compensation} = \left( \frac{800}{1000} \right) \times 400 = 0.8 \times 400 = ₦320\)
With the average clause, the insurer pays a proportion of the loss based on the ratio of the insured amount to the property value. The calculation is:<br/>\(\text{Compensation} = \left( \frac{\text{Amount Insured}}{\text{Property Value}} \right) \times \text{Loss}\)<br/>\(\text{Compensation} = \left( \frac{800}{1000} \right) \times 400 = 0.8 \times 400 = ₦320\)